Cornerstone is a bank holding company and the parent company of the Bank, a
Tennessee banking corporation which operates primarily in and around
Chattanooga, Tennessee. The Bank has five full-service banking offices located
in Hamilton County, Tennessee, and one loan production office located in Dalton,
Georgia. The Bank's business consists primarily of attracting deposits from the
general public and, with these and other funds, originating real estate loans,
consumer loans, business loans, and residential and commercial construction
loans. The principal sources of income for the Bank are interest and fees
collected on loans, fees collected on deposit accounts, and interest and
dividends collected on other investments. The principal expenses of the Bank are
interest paid on deposits, employee compensation and benefits, office expenses,
and other overhead expenses.

The following is a discussion of Cornerstone's financial condition at March 31,
2014 and December 31, 2013 and our results of operations for the three months
ended March 31, 2014 and 2013. The purpose of this discussion is to focus on
information about Cornerstone's financial condition and results of operations
which is not otherwise apparent from the consolidated financial statements. The
following discussion and analysis should be read along with Cornerstone's
consolidated financial statements and the related notes included elsewhere
herein.

Critical Accounting Policies

Cornerstone's accounting and reporting policies are in accordance with
accounting principles generally accepted in the United States of America and
conform to general practices within the banking industry. Our significant
accounting policies are described in Note 1, "Presentation of Financial
Information," to the consolidated financial statements and are integral to
understanding the MD&A. Critical accounting policies include the initial
adoption of an accounting policy that has a material impact on our financial
presentation as well as accounting estimates reflected in our financial
statements that require us to make estimates and assumptions about matters that
were highly uncertain at the time. Disclosure about critical estimates is
required if different estimates that Cornerstone reasonably could have used in
the current period would have a material impact on the presentation of our
financial condition, changes in financial condition or results of operations.
The following is a description of our critical accounting policies.

Allowance for Loan Losses

The allowance for loan losses is established and maintained at levels management
deems adequate to absorb credit losses inherent in the portfolio as of the
balance sheet date. The allowance is increased through the provision for loan
losses and reduced through loan charge-offs, net of recoveries. The level of the
allowance is based on known and inherent risks in the portfolio, past loan loss
experience, underlying estimated values of collateral securing loans, current
economic conditions and other factors as well as the level of specific
impairments associated with impaired loans. This process involves our analysis
of complex internal and external variables and it requires that management
exercise judgment to estimate an appropriate allowance.

Changes in the financial condition of individual borrowers, economic conditions
or changes to our estimated risks could require us to significantly decrease or
increase the level of the allowance. Such a change could materially impact
Cornerstone's net income as a result of the change in the provision for loan
losses. Refer to Note 1 and 4 in the notes to Cornerstone's consolidated
financial statements for a discussion of Cornerstone's methodology of
establishing the allowance.

Estimates of Fair Value

Fair value is used on a recurring basis for certain assets and liabilities in
which fair value is the primary basis of accounting. Cornerstone's
available-for-sale securities are measured at fair value on a recurring basis.
Additionally, fair value is used to measure certain assets and liabilities on a
nonrecurring basis. Cornerstone uses fair value on a nonrecurring basis for
foreclosed assets and collateral associated with impaired collateral-dependent
loans. Fair value is also used in certain impairment valuations, including
assessments of goodwill, other intangible assets and long-lived assets.

Fair value is the price that could be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants.
Estimating fair value in accordance with applicable accounting guidance requires
that Cornerstone make a number of significant judgments. Accounting guidance
provides three levels of fair value. Level 1 fair value refers to observable
market prices for identical assets or liabilities. Level 2 fair value refers to
similar assets or liabilities with observable market data. Level 3 fair value
refers to assets and liabilities where market prices are unavailable or
impracticable to obtain for similar assets or liabilities. Level 3 valuations
require modeling techniques, such as discounted cash flow analyses. These
modeling techniques incorporate Cornerstone's assessments regarding assumptions
that market participants would use in pricing the asset or the liability.

Changes in fair value could materially impact our financial results. Refer to
Note 6, "Fair Value Disclosures," in the notes to Cornerstone's consolidated
financial statements for a discussion of the methodology in calculating fair
value.

Income Taxes

Cornerstone is subject to various taxing jurisdictions where Cornerstone
conducts business. Cornerstone estimates income tax expense based on amounts
expected to be owed to these jurisdictions. Cornerstone evaluates the
reasonableness of our effective tax rate based on a current estimate of annual
net income, tax credits, non-taxable income, non-deductible expenses and the
applicable statutory tax rates. The estimated income tax expense or benefit is
reported in the consolidated statements of income.

The accrued tax liability or receivable represents the net estimated amount due
or to be received from tax jurisdictions either currently or in the future and
are reported in other liabilities or other assets, respectively, in
Cornerstone's consolidated balance sheets. Cornerstone assesses the appropriate
tax treatment of transactions and filing positions after considering statutes,
regulations, judicial precedent and other pertinent information and maintains
tax accruals consistent with management's evaluation. Changes in the estimate of
accrued taxes occur periodically due to changes in tax rates, interpretations of
tax laws, the status of examinations by tax authorities and newly enacted
statutory, judicial and regulatory guidance that could impact the relative
merits of tax positions. These changes, if or when they occur, could impact
accrued taxes and future tax expense and could materially affect our financial
results.

Cornerstone periodically evaluates uncertain tax positions and estimates the
appropriate level of tax reserves related to each of these positions.
Additionally, Cornerstone evaluates its deferred tax assets for possible
valuation allowances based on the amounts expected to be realized. The
evaluation of uncertain tax positions and deferred tax assets involves a high
degree of judgment and subjectivity. Changes in the results of these evaluations
could have a material impact on our financial results. Refer to Note 8, "Income
Taxes," in the notes to Cornerstone's consolidated financial statements set
forth in its Annual Report on Form 10-K for the year ended December 31, 2013 for
more information.

Review of Financial Performance

As of March 31, 2014, Cornerstone had total consolidated assets of approximately
$429 million, total loans of approximately $293 million, total securities of
approximately $89 million, total deposits of approximately $ 342 million and
stockholders' equity of approximately $41 million. Net income for the three
month period ended March 31, 2014 totaled $412,151.

Results of Operations

Net income for the three months ended March 31, 2014 was $412,151 or $0.00 basic
earnings per common shares, compared to a net income of $452,128 or $0.01 basic
earnings per common shares, for the same period in 2013.

The following table presents our results for the three months ended March 31,
2014 compared to the three months ended March 31, 2013 (amounts in thousands).

Net Interest Income-Net interest income represents the amount by which interest
earned on various earning assets exceeds interest paid on deposits and other
interest-bearing liabilities. Net interest income is also the most significant
component of our earnings. For the three months ended March 31, 2014, net
interest income before the provision for loan losses, increased approximately
$169 thousand or 4.64 percent over the same period of 2013. Cornerstone's
interest rate spread on a tax equivalent basis (which is the difference between
the average yield on earning assets and the average rate paid on
interest-bearing liabilities) was 3.72 percent compared to 3.62 percent for the
three month periods ended March 31, 2014 and 2013, respectively. The net
interest margin on a tax equivalent basis was 3.90 percent and 3.79 percent for
the three month periods ended March 31, 2014 and 2013, respectively. Significant
items related to the changes in net interest income, net interest yields and
rates, and net interest margin are presented below:

[[Image Removed: *]]The Bank's net interest income as of March 31, 2014 has been
positively impacted by a reduction in interest expense of the funding of the
Bank. The primary savings have been a reduction in the Federal Home Loan Bank
balances and a migration of funding from certificates of deposit and money
market accounts into non-interest bearing deposits accounts. First quarter 2014
interest income remains stable when compared to the first quarter of 2013. While
yield on earning assets decreased 0.15 percent, the Bank compensated by
increasing the balance of average loans and securities by approximately $25
million.

[[Image Removed: *]]The Bank's loan portfolio yield decreased to 5.69 percent
for the three months ended March 31, 2014 compared to 6.09 percent for the three
months ended March 31, 2013. Management believes loan yields will continue to
see downward pressure during 2014 as customers continue to refinance existing
loans and due to general market conditions. Cornerstone will attempt to increase
its outstanding loan balances during 2014 to offset the possible yield
reduction.

[[Image Removed: *]]For the three month period ended March 31, 2014, the Bank
investment portfolio yield decreased to 1.99 percent compared to 2.35 percent
for the same time period in 2013. The Bank increased the amount of its overall
investment portfolio to an average balance of approximately $96 million as of
March 31, 2014 from approximately $87 million as of March 31, 2013 to invest
cash that accumulated due to decreased loan demand in previous years and
continued prepayment amounts associated with the Bank's mortgage-backed security
portfolio. Management believes the present level of investment securities is
sufficient to provide for all pledging needs and represents an appropriate
amount of the balance sheet to provide liquidity and interest rate protection.

[[Image Removed: *]]The Bank's net interest margin increased from March 31, 2013
to March 31, 2014 by 11 basis points. The majority of the increase is due to
reduced interest expense relating to a migration from certificates of deposits
and other interest bearing deposits to non-interest bearing deposits, further
decreases in deposit rates and a reduction in FHLB borrowings. Management
believes that the balance sheet will remain at the present level or increase
slightly. Further, management continues to try and adjust the Bank's balance
sheet composition by reducing foreclosed assets and increasing the Bank's loan
balances. Management anticipates improvement in the Bank's net interest margin
is possible with the increase in loans and reduction of FHLB advances, as they
mature, in the next 12 months.

Provision for Loan Losses-The provision for loan losses represents a charge to
earnings necessary to establish an allowance for loan losses that, in
management's evaluation, should be adequate to provide coverage for the inherent
losses on outstanding loans. Cornerstone recorded $165 thousand in provision for
loan losses for the three months ended March 31, 2014. Cornerstone recorded $300
thousand in provision for loan losses for the three months ended March 31, 2013.

Noninterest Income-Items reported as noninterest income include service charges
on checking accounts, insufficient funds charges, automated clearing house
("ACH") processing fees and the Bank's secondary mortgage department earnings.
Increases in income derived from service charges and ACH fees are primarily a
function of the Bank's growth while fees from the origination of mortgage loans
will often reflect market conditions and fluctuate from period to period.

The following table presents the components of noninterest income for the three
months ended March 31, 2014 and 2013 (dollars in thousands):

Significant matters relating to the changes in noninterest income are presented
below:

[[Image Removed: *]]The Bank sold approximately $2.4 million of securities and
recorded a gain of approximately $102 thousand during the first quarter of 2014.

[[Image Removed: *]]During the first quarter of 2013, the Bank recorded
approximately a $100 thousand fee from the sale of a Small Business
Administration ( "SBA") 7A loan while during the first quarter of 2014, the Bank
did not sell any SBA loans.

Significant matters relating to the changes to noninterest expense are presented
below:

[[Image Removed: *]]Cornerstone recorded compensation expense in the amount of
$156 thousand for stock grants issued to the Board of Directors and $40 thousand
in stock options compensation expense during the first quarter of March 2014
versus none in the first quarter of March 2013. Management does not anticipate
additional stock grants to be issued in 2014. Other salaries and employee
benefits increased slightly during the first quarter of 2014 as a result of the
Bank addressing employee wage increases. The Bank had not provided wage
increases in the past three years.

[[Image Removed: *]]As of March 31, 2014, the Bank recorded approximately $349
thousand in foreclosed asset expense compared to approximately $129 thousand
during the first quarter of March 31, 2013. The majority of the $349 thousand in
foreclosed asset expense was comprised of approximately $244 thousand in
appraisal write downs and losses incurred on the disposal of foreclosed assets.
The Bank incurred approximately $104 thousand in net carrying cost for its
foreclosed assets during the first quarter of 2014. A majority of the
incremental expense was due to maintenance and repairs of the existing
properties. Management anticipates approximately $1.2 million of expense and
write-downs on its foreclosed assets during 2014. Management nets the expense
and write-downs of other real estate owned against the income generated from
income producing real estate to calculate net foreclosed asset expense.

Financial Condition

Overview-Cornerstone's consolidated assets totaled approximately $432 million as
of December 31, 2013. As of March 31, 2014, total consolidated assets had
decreased approximately $3 million or 0.74 percent to approximately $429
million.

Liabilities as of March 31, 2014 and December 31, 2013 totaled approximately
$388 million and $392 million, respectively.

Stockholders' equity as of March 31, 2014 and December 31, 2013 totaled
approximately $41 million and $40 million, respectively.

Securities-The Bank's investment portfolio, primarily consisting of Ginnie Mae
Agency, mortgage-backed securities and municipal securities, in the amount of
approximately $89 million as of March 31, 2014 compared to approximately $92
million as of December 31, 2013. The primary purposes of the Bank's investment
portfolio is to provide liquidity, satisfy pledging requirements, collateralize
the Bank's repurchase accounts and secure the Bank's FHLB borrowings.

Loans-The composition of loans at March 31, 2014 and at December 31, 2013 and
the percentage (%) of each classification to total loans are summarized in the
following table (dollars in thousands):

Allowance for Loan Losses-The allowance for loan losses represents Cornerstone's
assessment of the risks associated with extending credit and its evaluation of
the quality of the loan portfolio. Management analyzes the loan portfolio
quarterly to determine the adequacy of the allowance for loan losses and the
appropriate provisions required to maintain a level considered adequate to
absorb anticipated loan losses. The Bank uses a risk based approach to calculate
the appropriate loan loss allowance in accordance with guidance issued by the
Federal Financial Institutions Examination Council. Although the Bank performs
prudent credit underwriting, no assurances can be given that adverse economic
circumstances will not result in increased losses in the loan portfolio and
require greater provisions for possible loan losses in the future.

[[Image Removed: *]]During the first quarter of 2014, the Bank recorded $165
thousand in provision expense to the loan loss allowance. Cornerstone utilizes a
ten quarter look-back time frame for its historic loan loss analysis for loan
charge-offs and recoveries. Management believes its allowance methodology is
consistent with generally accepted accounting principles and interagency policy
statements published by the Bank's regulatory agencies. However, additional
provision to the loan loss allowance may be needed in future quarters as the
Bank works its problem assets through the collection cycle and as the loan
portfolio continues to grow.

The following is a summary of changes in the allowance for loan losses for the
three months ended March 31, 2014 and for the year ended December 31, 2013 and
the ratio of the allowance for loan losses to total loans as of the end of each
period (dollars in thousands):

March 31, December 31,
2014 2013
Balance, beginning of period $ 3,203 $ 6,141
Loans charged-off (486 ) (4,709 )
Recoveries of loans previously charged-off 129 1,471
Provision for loan losses 165 300
Balance, end of period $ 3,011 $ 3,203
Total loans $ 292,952 $ 289,440
Ratio of allowance for loan losses to loans
outstanding at the end of the period 1.03 % 1.11 %
Ratio of net charge-offs to total loans
outstanding for the period 0.12 % 1.12 %

Non-Performing Assets-The specific economic and credit risks associated with the
Bank's loan portfolio include, but are not limited to, a general downturn in the
economy which could affect employment rates in our market area, general real
estate market deterioration, interest rate fluctuations, deteriorated or
non-existent collateral, title defects, inaccurate appraisals, financial
deterioration of borrowers, fraud, and violation of laws and regulations.

The Bank attempts to reduce these economic and credit risks by adherence to a
lending policy approved by the Bank's board of directors. The Bank's lending
policy establishes loan to value limits, collateral perfection, credit
underwriting criteria and other acceptable lending standards. The Bank
classifies loans that are ninety (90) days past due and still accruing interest,
renegotiated loans, nonaccrual loans, foreclosures and repossessed property as
non-performing assets. The Bank's policy is to categorize a loan on nonaccrual
status when payment of principal or interest is ninety (90) or more days past
due. At the time the loan is categorized as nonaccrual the interest previously
accrued but not collected may be reversed and charged against current earnings.

[[Image Removed: *]]The Bank has been able to reduce its non-performing assets
over the last twelve months. As of March 31, 2014, the Bank had approximately
$17.3 million in non-performing assets. The majority of this amount is comprised
of foreclosed assets. The Bank has attempted to be proactive in its approach of
minimizing the time a loan is recorded in nonaccrual status. Management has been
able to transition loans from nonaccrual into foreclosed assets or, in some
limited instances, upgrade the loan to a performing status. Management
anticipates additional loans could transition into foreclosed assets in the
future. However, management anticipates the balance of foreclosed and
non-performing assets overall will continue to reduce as the Bank continues to
allocate both financial and human resources towards this objective.

The following table summarizes Cornerstone's non-performing assets at each
quarter end from June 30, 2013 to March 31, 2014 (amounts in thousands):

[[Image Removed: *]]The Bank's nonaccrual balances decreased during the first
quarter of 2014 compared to the first quarter of 2013. Loans 30-89 days past due
also declined in the first quarter of 2014 when compared to the first quarter of
2013.

[[Image Removed: *]]Management believes nonaccrual loans will decrease during
the remainder of 2014.

[[Image Removed: *]]The Bank's foreclosed assets decreased from approximately
$21 million as of March 31, 2013 to approximately $13 million as of March 31,
2014. The Bank has seen an improvement in the level of interest in its
properties by potential buyers and has provided $1.2 million for foreclosed
asset expense again in the 2014 budget to decrease foreclosed assets. Management
is targeting a net reduction in foreclosed asset levels by approximately $5
million during the remainder of 2014.

Deposits and Other Borrowings-The Bank's deposits consist of non-interest
bearing demand deposits, interest- bearing demand accounts, savings and money
market accounts, and time deposits. The Bank has agreements with some customers
to sell certain of its securities under agreements to repurchase the securities
the following day. The Bank has also obtained advances from the FHLB.

The following table presents the Bank's deposits and other borrowings as either
core funding or non-core funding. Core funding consists of all deposits except
for time deposits issued in denominations of $100,000 or greater. All other
funding is classified as non-core (amounts in thousands).